Real estate industry undergoes shift as homebuyers now need to pay agent fees upfront.

Now, homebuyers must negotiate the commission they pay their real estate agent prior to beginning their home search, a change that has disrupted the traditional process of purchasing a home.

Effective Aug. 17, a court settlement has resulted in a change where buyers must now negotiate and pay their agent's fees separately, instead of the traditional practice of both buyer's and seller's agents commissions of 5% to 6% of the home price being paid by the seller using the sale proceeds.

The new rules allow buyer's agents to receive payment in various ways, such as a percentage of the purchase price, a flat fee, or an hourly rate.

While buyers have greater flexibility in negotiating the price they pay for an agent, homebuyers may find the options overwhelming if they are unsure of their next steps. To help navigate the new rules, here is a summary of what you need to know.

You still might need a buyer's agent

It's unlikely to be beneficial to forgo a buyer's agent when purchasing properties unless you possess expertise in the process.

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NAR data shows that 9 out of 10 homebuyers work with an agent because they provide local market expertise, help find listings that meet their needs, handle paperwork efficiently, and negotiate to secure the best possible price on their behalf.

Before engaging a buyer's agent, it is necessary to execute a written contract.

Realtors representing buyers must have a written contract before they can begin working for their clients under the new rule.

An agreement between a buyer and their representative, commonly referred to as a buyer's agent agreement, should typically contain the following elements.

• The terms of the agreement outline the duration of the contract, which can range from a few weeks to several months. It is essential that both the buyer and agent sign the agreement.
• The compensation, whether it's a percentage of the purchase price, a flat fee or an hourly rate, should specify who is responsible for paying it, whether it's the buyer, seller or both.
• The scope of services includes property search, scheduling viewings, and handling negotiations.
• Buyer's agents typically have an exclusive representation clause in their agreements, which requires the buyer to work only with that agent throughout the contract. However, this clause is negotiable.
• "No-fault termination" is a cancellation policy that allows either party to leave, typically within a short period of time.
• This confirms that the agreement complies with state and local laws, indicating the jurisdiction where disputes will be resolved.
• Confidentiality clause: States that any personal or financial information shared remains confidential.
• The agent must inform both the buyer and the seller if they are representing both sides in a dual agency disclosure.
• The amendments clause will detail how any changes to the agreement will be handled. This is crucial if you want to transition from an hourly rate or flat fee model to one where the seller pays your buyer's commission for a specific listing.
• Signatures of both the buyer and the agent.

With rule change, will buyer's agents be cheaper to hire?

The market for buyer's agents may be affected by rule changes, but there is more flexibility to negotiate.

According to Armstead Jones, strategic real estate advisor at HouseCashin, the percentage of total sales price requested or required by agents in the past was nearly 6%. With the new rules, this may decrease to 3% or 4%. This implies a rate of approximately 1.5% or 2% for buyer's agents.

Mike Hardy, managing partner of the Southwest region for Churchill Mortgage, suggests that a tiered system of service may emerge, with a premium all-inclusive service at the top end ranging from 2% to 3%. This would be followed by more "stripped down" models for less, including an "attorney-type model" offering hourly services for drafting purchase contracts or negotiating prices.

Hardy states that although there is a slight decrease in sales expenses overall, there is more variation due to the emergence of fee-for-service models that will capture a portion of the market share.

What form of payment for a buyer's agent should you choose?

If you're a "savvy" buyer comfortable finding properties on your own, you might opt for reduced service to close an offer for a property, says Jones. This could be a smaller percentage of the purchase price, a flat fee or an hourly rate.

A flat fee can be used for limited services, while a commission-based agreement offers a full suite of services.

A flat or hourly fee for an agent may not motivate them to provide additional effort in finding you a home, as they would with a percentage of the home sale. These payment models may not meet your home search requirements, which can be difficult to estimate or anticipate.

To obtain the best value from an agent, you must investigate your options, compare services, and negotiate effectively, as Hardy advises.

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